tv Bloomberg Surveillance Bloomberg December 15, 2016 4:00am-7:01am EST
♪ francine: a tale of three hikes. hawkish forturns 2017. one small move for yellen, one giant leap for the dollar. the u.s. currency moves to a 10 month -- 10 month high. bridget balancing act. mark carney walks the line between growth and inflation. how does the eu make policy in the dark? i am francine lacqua in london. a great show lined up as we break cap -- down what we learned about the futures of u.s. rates. we look at political outlooks for 2017.
andrew wilson from goldman sachs asset management, we get his call for the coming year. fx head of global strategy. first things first, we are getting a little data from euro area services pmi falling 53.1. a little less than analysts forecast. manufacturing rising more than expected. this is the picture of euro markets. vix.w you fix because -- a lot of people saying we don't know much. brought up the bloomberg dollar index. euro-dollar one. 1.05. here is's -- sebastian. >> the japanese president hopes for a breakthrough over a seven
decade territorial dispute. the soviet union invaded the island's at the end of world war ii, expected to top the agenda at the meeting in southwest japan. the meeting will head to tokyo for talks on economic cooperation. new york may be the winner from any brexit-driven activity from the financial services of london. the house of lords eu committee reports unless negotiations on both sides are pragmatic, jobs could go to wall street rather than paris and frankfurt, it far behind london and new york. australia's economy recorded its biggest jobs game this year in november. it added more than 39,000 jobs, double the estimates. the central banks forecast that hiring would improve in the coming months, it suggests policy makers would increase their interest rate spots.
the last parliament really hurdle as prime minister. he won a vote of confidence in the senate. global news, 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek. this is bloomberg. francine: three hikes in 2017, federal reserve raised basis points by 25. the central bank surprised with a more hawkish tone. will janet yellen -- she outlined the coming. confidence ine of the economy. changes in fiscal policy or other economic policies could potentially affect the economic outlook. of course, it is far too early
to know how these policies will unfold. moreover, changes in fiscal policy are only one of the many factors that can influence the outlook and the appropriate course of monetary policy. i would say at this point that obviouslyicy is not needed to provide stimulus to help us get back to full employment. we are operating under a cloud of uncertainty at the moment and we have time to wait to see what changes occur and factor those into our decision-making as we deem -- gain greater clarity. as the federal reserve embarks on its tightening cycle, we are likely to see monetary policy divergence reach new extremes. says my new guest. andrew, always great to have you. thank you for coming in. i made a chart -- i didn't. the queen of charts did. what the dots are
telling us in 2016. that is the blue impaired what they are telling us this year. at 1.3 at theo be end of next year is to mark or is that too much? we have been saying the market should be paying closer attention to what the fed is saying and we think in 2017, 3 hikes as possible. as janet yellen said in the clip, the hard part to know is how much this fiscal expansion donald trump has talked about will materialize. it was interesting to look at the summoning -- summary of .conomic projection it doesn't seem the fed has built-in a lot of fiscal stimulus despite moving the dots 25 basis points. the story of further upward moves in rates and the move of 1.4 or 1.5 is possible by this
time next year. francine: what happens if dollar strengthens significantly? -- it does a lot of the fed's job. mark: it depends on how much the fed moves. a financialates on conditions framework and if you have a tighter dollar, the announcement of president-elect so the dollar has strengthened already. if it moves at this pace, yes, we want to revisit that rick -- rate forecast. it is financial conditions versus growth projection. 2.1 percent next year. if anything, on the light side. we see growth being stronger than that. francine: possible trade wars? mark: it is uncertain to know. we will see how much these protectionist policies that were discussed are actually implemented and to what extent they really detract growth.
strength ishe line, with the u.s. consumer. if you have job growth, increase in wages. both boost spending power and it is possible the whiskey economy continues to move ahead, even if the trade side is hostile. francine: we talk about emerging markets, what does this mean for china's policy? the markets have ignored china for the past 10 months. will it be back in 2017? mark: china continues to slow down in our view for next year. absent any trade disputes that may or may not occur, we still think china is on a slowing growth trend. we would have chinese growth more like 6.25% china does continue to slow. some lock on impact to other asian economies. we will have to see how the trade situation develops. china will be softer next year. francine: but stable? , youoks are continuing
have the reserves. mark: those are key indicators. what is growth doing? what pressure does that cause for capital outflows and how to chinese authorities react? those are critical elements in 2017. francine: the fed tightening three times, if they can manage, does it make mario draghi's life easier? mark: maybe if we see the euro soften. -- if it softens, it makes mario draghi's job easier. detergents continues to play out detergents continues to play out in 2017. we have seen them announce quantitative easing, it is clear the ecb wants to keep rates low for a long time and the fed has got rates increasing. that divergence will play out in 2017 and maybe 2018. francine: the main been officials of divergence are
japan and the u.s.. mark: there is the question of how far those rates can deviate. we are a pretty historically wide levels. it is possible we get wider from where we are now. francine: what does it mean for markets? mark: higher u.s. rates, there is a point at which japanese and european investors look at what they are getting domestically and across the atlantic, thinking we have good yields there. if we have above 3% at some stage next year, that may create a flow of funds into the u.s. and could mitigate how far rates rise and how strong the dollar is going to be. francine: thank you so much. we will get plenty more from andrew will smith -- wilson at goldman sachs. i also want to ask him what his biggest risks are. will 2017 be the year to de-risk. we will be back with andrew and his outlook on the coming year.
night. mixed performance the equities. look at currencies slumping against the dollar. bloomberg dollar index at a record high today. look at bond yields rising. of by 11 basis points. --herlands and sweeting sweden all rising. gold down by 2% today because of sovereign cds, gmm fomc. anyway, to the charts. queen of charts. her favorite chart today. hikesout the three rate next year. the median for cap -- forecast from participants. this chart shows you the blue were projected 2017.6 and much higher than now, a real
reversal. the first ever since the dots were introduced. the spread between the two year in the u k and the u.s. is at a 25 year high as we approach the boe meeting. expect nothing from the bank of england today. it shows you the dynamics in the bond market, the bottom chart is the pound against the dollar. sterling declining today. something the boe has to think about. inflation expectations here are at a two-year high. prices for marmite increase. if that becomes entrenched, you ,ight see a rise in wages impact on the bank of england going forward. is the next move a rate hike rather than a rate cut? the economists we surveyed said it is. francine: tell me i'm wrong. i read that lego hiked prices in the u.k.. mike martin, thank you. the rise of populism, the return those arepolicy and
some of the key things to watch out in 2017. with me this morning, andrew wilson, ceo at goldman sachs asset management. what is one thing that worries you the most about 2017? a lot of what we heard is priced in, reflate in the u.s. economy. we don't deliver on some of those promises? or something ugly is brewing? mark: we are pretty optimistic about the u.s. growth story and should cheer the fact that interest rates are likely to move up next year. it tells you we are getting back to a normal growth story, a normal operating environment with the fed raising interest rates and growth expectations pick up. the thing that worries is the most that year is this notion we are moving from globalization to a more populism. we saw that play out with brexit and the election of donald trump. we'll return to europe and the
elections taking place there next year, primarily the french presidential election, again, i think that provides a high degree of uncertainty. we will see how that plays out. francine: but markets don't care. mark: they haven't yet focused on it. so far. with the scottish referendum, we saw with the brexit vote. it just takes a while. in our of that -- in best of all time horizon, there is a lot to happen before may. how much does donald trump -- his first 100 days, what does he do, what are his reflationary policies? it won't be long before markets start to think, how are the french presidential elections playing out and could we get another political surprise come from there? it could derail this relatively positive story we are talking about if some political uncertainty across europe. francine: basically we are
saying they are doing policy in the dark. they don't know what kind of brexit negotiations will look like. inflation is higher. a catch-22 for them. mark: they're in a tough spot. inflation picking up. risk of a slowdown of economic activity as that inflation picks up. it reduces real incomes and for consumers who have actually been relatively resilient so far, could be much softer next year. the bank of england could be in a difficult spot where they see growth slowing. the employment numbers this week, if you have a slower consumer but also rising inflation, the bank is going to have to juggle those things. on balance, they are unlikely to move next year. if anything, a modest reduction in interest rates. not our central case, but we err on the side of softer rather than stronger. francine: so it is right to look through this inflation? yes, unless sterling keeps
weakening and they have to take notice. but these numbers have bounced in the course of a couple weeks. they will walk through that and say, we need to make sure the investment has a result of the uncertainty we are facing the next few years, we might need to be more accommodating. francine: one thing i looked in your report was the divergence in financial sector regulation. this goes back to what donald trump has promised to do for wall street. how does it play out on the market? mark: he's talked about rolling back regulation in health care, energy, all of those things could unleash animal spirits. we shouldn't underestimate the ability of that sentiment to drive markets. clearly front and center in the u.s.. it is not on the agenda in the u.k. or in europe. francine: do we lose automatically? mark: who are the winners and
losers out of that? the u.s. financial sector, if we get the rebate -- deregulation we talked about, stocks have reacted pretty positively. there may be more that to come if the european regulations remain relatively tight. good relative value opportunities there, whether in financial sector, interest rate markets, particularly u.s. government bonds even at these higher levels. something we haven't touched on -- if theatriation tax code changes to make it more favorable to take back some of that money, that could also increase the credit cycle. favorable for u.s. corporate. francine: thank you so much. goldman sachs asset management, stays with us and we talk more about what we touched on in politics and populism. to 2017 -- good 2017 bring
♪ francine: bloomberg: surveillance. francine lacqua in london area more on how populism will change the agenda in europe and the united states, let's bring in goldman sachs asset manager andrew wilson. i am confused. we talk about populism and then we see donald trump elect -- who he elects to the administration
seen business leaders take big posts. he was certainly elected on a populist mandate. some policies still could be helpful. particularlyation, the cap -- tax cuts, infrastructure spending. overink that takes place 2017-2019. it takes time to get those in place. it won't be straightforward to get them approved. that remains uncertain. but yes, ultimately we need jobs in the u.s.. that was the pledge. we will see if you can deliver on that pledge. francine: if you look at spreads between italian bonds and german bonds -- this is a chart we brought in 2011, fairly bunched on the referendum. renzi was kicked out. france is similar lines.
you don't really price risk. risk andou see that you say, there is a chance that populism causes some uncertainty, causes fragility in markets, pricing of risk. but that happens sometime in the future. in the meantime, ecb is conducting quantitative easing program and buying bonds each week. you have to get that timing right. it is remarkable, we saw the italian referendum -- what came out is not what markets were expecting. a brief sell up -- selloff but it came back quickly. withll see a similar thing the dutch elections, french presidential election, maybe the german elections in the year. markets will become concerned as we get close and we will see to what extent the ecb can offset some of that uncertainty through it is fine operation. francine: let's see marine le pen becomes leader of france. andrew: that was one of her
pledges. she can't make that decision. we will have to understand the process. in the same way that donald trump has stepped back from some of his more extreme promises. it is unclear with -- whether marine le pen would follow through on those. is it through a referendum or some other way of negotiation? -- frenche friend find less palatable. that uncertainty will remain there. it is hard to model that. you look at possible market moves, but it is hard to model. francine: thank you so much, andrew wilson from goldman sachs asset management. we talked dollar parity. generosity is its own form of power.
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minister heads for a breakthrough over a second kid dispute. the meeting is in southwest japan. the leaders will head to tokyo to talk on economic cooperation from nuclear energy to agriculture. new york may be the winner for many brexit-driven financial services from london. lawmaker --s u.k. lawmakers reports that unless negotiations on both sides are pragmatic, jobs could go to wall street rather than paris and frankfurt, which are behind london and new york. parliamentary hurdle as he won a vote of confidence in the senate. -- resignation from his predecessor matteo renzi. global news 24 hours a day, powered by more than 2600 journalists and analysts in more , i'm120 countries
sebastian sarlacc in this is bloomberg. francine: let's turn to the story driving the markets. the federal reserve's raise interest rates by 25 basis points. first move of 2016. the surprise was in the hawkish tone on the rate pass, the snb predicted three hikes. what some of our guests said about the outlook. >> i would doubt the ability of a central bank to raise interest for theree times a year next several years because the global economy and even u.s. economy is relatively highly housing will begin to reflect that. >> the risks of the central saidast 2-3 and the fed three interest-rate hikes is on the upside. if there is more's fiscal
stimulus, more growth, were written -- more inflation we think, the fed will be more in group -- aggressive. >> here is where politics comes in. back to be a drag on the economy. it is going to be very important to see what happens after the inauguration in january. >> they need to be careful. the trump proposals, if they get momentum and if you see some movement on the tax cut or infrastructure program, greater than expected, they are going to need to be very attuned to what that might imply for inflation pressures going forward. >> there is a clear indication that the fed is less willing to keep interest rates artificially low at the markets are reacting. host reaction has been on the interest-rate front and on the currency front. francine: let's talk the fed
rate outlook. the globalest is head of effects strategy. great to have you on the show. what do we learn from the fed? three hikes, this is what they what they said 12 months ago. >> yes, but i think it is different this time. what is different, two things. the data is coming out stronger than anticipated. pre-trump come a pre-fiscal expansion, pre-gdp was 2.3%. strong in not that q4, but it will be their too. inflation is picking up. cpi, looking for 1.7%. very different from last time the fed hiked. ,hat alone, that fact alone strong inflation is important. plus expectations of fiscal stimulus when donald trump comes.
combination is pretty potent to the fed. i would argue the market lucas is the right one. i don't think there is tightening, the risk is we get more rather than less. the fed: this is where 0.7 5%.e, in blue, the expectations we had for fed hikes. this was for 2016. this is the curve in white of what markets are expecting for 2017. does that go right? 1.38 next year? steven: probably a minimum. line is downward sloping. disappointment from the fed over the last 12 months. that combination, stronger growth and inflation, fiscal stimulus, is changing things. from our perspective, yes. 2-3 hikes next year and even more in 2018 is the most out likely -- likely outlook. francine: for the dollar question mark -- dollar? steven: much stronger dollar.
probably not in an equal level. dollar't just buy the willy-nilly. you need to look at the other end of the trade. our fault -- value is dollar-trip -- dollar-yen. 105.3, will we go to parity? steven: yes. our forecast end of 2017. a much less aggressive called an hour 128 on dollar-yen. well,nk the dollar does but that example you highlighted there, short yen is the better trade than short euro. the reason is the policy differences between the bank of japan and the ecb on the other. we don't think there will be a change to max the bank of japan, that the ecb will change -- is changing our view.
-- ecb will exit quantitative easing during the first half of 2018. a big contrast to what is going on in japan. as an fx person, i prefer dollar-yen, over short euro-dollar. 2018.ne: first quarter of -- first half, stronger growth or because they realize qe is not working? steven: good question. our view, this is very much about inflation. qe from the ecb was always focused on inflation. it was to try and avert disinflation or the flexion, -- d-inflation. expectations are rising. if you look at what we think will become the ecb's new forecast, it will see inflation moving higher. had 0.2% inflation on average this year in the eurozone, next year that is 1.2%.
very much going in the right direction. francine: what happens to yen? incredible targets, first of all. what does he do from here? look at dollar and think, they are doing the tightening for me. steven: that's right. i would argue the bank of japan was lucky -- unlucky at the beginning of this year and then they had some luck. a were unlucky on negative deposit rate, now the u.s. is doing the heavy lifting. francine: as if on cue, i was going to ask on pound. in the council building, you can see theresa may. we know she won't stay the whole evening because she has not been invited to dinner tonight. soresa may will leave early the other european countries can presumably discuss what they will do about brexit and how they see the negotiations going. a lot of the ministers arrived,
it is around this time they have about three hours meeting, they do a lunch break, a lot of them brief their own national reporters. i think we have had five liters so far. one of these black cars -- i have covered many eu summits throughout the years. it is always exciting. the problem with that building, they were built for europe of 15, 18. the facilities are quite made journalist of 28 member nations. what happens to pound? boe meets today. a are doing policy in the dark. if you think about what they need to do, they have no idea what these negotiations are looking like. you have inflation going up and up. steven: good question. we have a controversial view on the pound. we are pretty constructive. dollar, whichhe
is a dollar, which is a large, to make given we are positive on the dollar. but against the euro. the base case for us is a lot of bad news is priced in. to extremed fallen undervalued levels. we're not surprised it is rebounding. theink the key point is market was previously pricing in a hard brexit -- hard brexit. but also aggressive policy action from the bank of england, each we did see some. but our view is the outlook for that has changed radically. we don't expect to see more aggressive easing from the bank of england. francine: we will get back to stephen. stay with surveillance. plenty coming up, including the boe's balancing act. growth,ons for lower things could get complicated for mark carney. us, will putin and always over therel tensions seven decade dispute.
cehic. boe.ch 20 two for the no change expected today? nejra: that's right. no change expected today. orn to the benchmark rate asset purchase target. what investors will focus on is any comments mark carney -- any comments that come out in a minute of this balancing act between supporting growth on one hand and controlling inflation on the other. that dilemma has been in the economic data we had this week. employment dropped for the first time in more than a year. on the other hand, inflation accelerating to its highest in more than two years. those expectations have been fueled by a weaker sterling. sterling, we have seen on a trade basis rise 6.5% from the last meeting, which was key. there was a shift from easing buyers to a neutral stance.
intelligence is expecting the bank of england to confirm that neutral stance today. francine: at the same time, we know mark carney is in frankfurt today. we are not sure whether he is -- the ecb or not. nejra: this is interesting. according to people familiar, it is a busy day for mark carney. he is having a meeting with the ecb's general counsel. this is different from the governing council, which is central bankers from the eurozone. this is from the eu. theecb has not commented on agenda, but we expect that carney is going to be asked about the fallout from brexit and the potential spillover of european countries. we know mark carney has called the u.k. the investment banker to europe and he has experience in dealing with that fallout in the u.k.. that is one of the focuses next year as well. this balance we have between boosting growth or maintaining
growth but also controlling inflation, that gets even more tricky when article 50 is triggered. francine: thank you so much. mayor cage at the bank of england. does mark carney have to look through inflation? steven: absolutely. two points. the bank of england has a clear history of doing this. 2011d cpi 5% in 2009 and and that then governor was happy to produce on a monthly basis to explain why inflation was high but there was no response. this is the case at the moment now. we know why inflation is high, fallout from the pound, growth is falling. he will look through the high inflation levels, keep policy where it is -- i don't did he needs to do much. francine: what happens?
let's say impatient is much stickier. i don't know if it is trade towards -- trade wars are tariffs, if it becomes a different inflation does he have to deal with it? steven: i don't think so. the inflation he is worried about his wage inflation. similarly to the federal reserve , this is what they don't want to come in. if it is we'll related, currency related, it tends to be one off and he will focus on what leads the economy. we would highlight that we think growth slows next year in the u.k. with 1.1% growth. that is what he has to keep on his mind. highly unlikely we get any kind of preemptive rate hike from the bank of england on the basis of inflation. thecine: live pictures from swiss national bank president, he will talk to matt miller a later on. if the fed tightening and
therefore, dollar strength does the job for defend -- japan worried does it do the same for switzerland? steven: hopefully. it is a tricky question. the swiss national bank is focusing on euro-swiss and that has been under pressure lately. we all know that twin pronged of -- approach of negative interest rates. the most negative of all nations. but also fx intervention. i think that is going to continue to be the driver of swiss national bank policy. your favorite is pairing outside euro-yen? steven: i think the point we -- is long dollar versus canadian dollar. we think there could be catch off here. this is a controversial view as well. we think the bank of canada could ease policy as early as
the first quarter 2017. a big contrast to the fed, becoming more hawkish. the bank of canada is not only not following, going the opposite direction. a pullback -- pullback in dollar-kurd, an opportunity for long exposure. francine: emerging markets seem safe. no temper tantrums. we have seen that with every fed hike. steven: it is a tricky one. a lot of that is linked to equity markets doing well. -- risk is quite good. bottom line is dollar will do well against emerging markets with large current account deficits. turkey and south africa, also the asian currencies. dollar-yen continues to rise, dollar-asia. there are pockets of strength in emerging markets. brazil continues to look very nice, fundamentals. there will be attractive pockets of strength in emerging markets.
♪ francine lacqua in london. let's get to the business flash with sebastian sarlacc. >> agreed to buy cap's itself from kkr, for $5.5 billion. of $2 billion. the move comes as the biotech and specialty chemicals company focuses more on health care. gained market share for the first time since the start of its is the emissions scandal. counters --- it that is compared with 24.6% year
earlier. the first gain since 2015. a sign bw may be consumer trust. yahoo! fell in extended trading after another security breach. it says an unidentified third users.ack one billion it is a leak that could allow ers to have accounts, posing threats to national security. that's the bloomberg business flash. i am sebastian salek. you're staying another half-hour with tom and i. yen, and you at at thisng governments point have to do anything because the fed will almost do his work for him. how do you work -- rate the governors role in 2017. it has always worked against him. steven: not to his own doing.
the key point here is i would argue that the reason dollar-yen fell this year was because the market aggressively repriced the fed. and it was that big fall in 10 year and two-year yields in the u.s.. he was powerless to do that. what we tend to find is policy divergence works very well when there is a positive gap in somebody's hiking. the fact the market is pricing in federate hikes, it makes japanese monetary policy more powerful. in some ways, that is helping him. his is what he wanted all along. extreme dovishness from the boj because be empowered what we are hearing from the federal reserve, hence our view dollar-yen is the best way to play policy diversions in the foreign exchange market. francine: will the cap in 10 year yield work? if he starts selling to make sure it is around that level, there is concern people might be taking it as loosening policy. steven: it is unlikely he will
shift to selling. what they may do is tolerate a gentle rise in 10 year jake peavy -- yields. with that huge cap with the u.s., there is a lot of leeway for that. francine: that is my gap. as if by cute. --s is the spread between what does this chart tell us? can see the big move in 2017 and how it contrasts with the first half of 2016. it moved against the u.s. in andr of japan until q3 exploded to the upside and we don't think it stops there. think it continues to go with targeting 3% on u.s. treasuries .ntering .5% in 2018 that spread only has one week ago and is politics -- positive
for dollar-yen. francine: this is with no trade wars? steven: yes. that is our base assumption. francine: you know what we are talking about next? trade wars. he stays with us. bloomberg: surveillance continues in the next hour. you can join me out of new york, great central-bank head interviews. is what we are seeing. beautiful in new york. most sunny in london. a little apocalyptic in new york. but tom keene waking up. this is bloomberg. ♪
one small move for yellen and one giant leap for the dollar, the u.s. currency rallies to a 10 month high against the and and treasury yields soar. mark carney walks the line between growth and inflation, how does the boe make policy in the dark? i am francine lacqua with tom keene in new york. i was watching your coverage yesterday. trying to pick up from the morning after the day before and look at what the fed move and hot dish tone means for 2017 -- hawkish tone means for 2017. tom: great to have steven saywell with us. francine: important first work news. a deal thatbels say will allow fighters and civilians to be evacuated is back in place. it was originally set for yesterday about a cease-fire fell apart in fighting with
russian backed syrian troops resumed with rebel saying the first group to leave a level to areas held by the syrian opposition. china appears to be deploying weapons on all seven -- according to photographs released by a washington think tank. group says anti-aircraft guns are among the weapons that have been installed and china's president promised not to militarize. makerow airport trying to nice with those opposed to its controversial third runway, offering $1200 to hundreds of homeowners to take part in environmental study, they live on the land where the new runway is scheduled to be built. has told america's tech leader he is an ally, he convened a summit of silicon valley elite, many of whom supported hillary clinton. donald trump: you are doing well right now and i am honored by
the balance. -- bounce. everybody has to like me a little bit. he told the tech leaders there is nobody like that in the world and he wants them to continue with their comparable -- incredible performance. this is bloomberg. tom: thank you. equities, bonds, currencies, commodities with foreign exchange at the center, the litmus test, futures continue to advance with 2/10 spread out 1.7 up to 132m a 127is off the fed meeting and the euro may be on the parity watch at 104.98 through 106.05 down to 104 with oil not part of the story. we do an extended foreign-exchange check later in the hour. is weak and philippines
peso, i will get to at a moment at a 50 print early this morning with gold futures taking. dollar is the chief beneficiary of the federal reserve first interest rate hike in 2016. the euro-dollar interesting. steven saywell is expecting parity by the end of the year, and vix, aar, 104.94 lot of research notes of what we expect for 2017, the vix probably the place to be next year. to get yourou need bonus at the end of the year. the bonus round of a bloomberg chart, i could have used it team charts but i picked in the philippines because they went 20,000 in fordow exchange, the crisis of 1997 with weak philippines peso, here is the miracle, a strong philippines peso.
this move up and this morning we breached through the 50 level here. 50 pesos, philippine pesos to the dollar and this goes to the knock on effect, what janet yellen and what mark carney do has tangible effects in em. we heard that from mr. gross yesterday afternoon. francine: when you look at the repercussions from what the fed does and will do, we need to look at all markets, especially the emerging markets. showss a simple chart, it where the dots are projecting rates this year compared to last year. pink is the fed funds. projections and this is for 2017, the markets at the moment expecting that rates to be at 1.38 by the end of next year.
it shows the expectations we had for 2016 with did not come to fruition. for more or less get to steven saywell from bnp. steven thank you for joining us. what did we learn from the fed? will dollars free enable them to hike three times next year? downn: janet yellen -- >> gas janet yellen was tried to downplay the shift in the press conference, she said this was not necessarily a new world they were looking at, a few numbers of the committee thinking about the implications of donald trump , they said many had countered that out of their forecasts. what was a little bit hawkish was since that the unemployment rate is getting close to full employment or maybe already at full employment in the fed view
and that you see forecast as they are reducing further their unemployment rate through the next couple of years. it suggests that they are no longer thinking in terms of this running the economy hot and if you that is -- the idea they are striving to be behind the curve took a bit of a battering with yesterday but i would not overdo it. they are in wait and see mode, data dependent and i think the dollar will have an impact. if we see a further upward move in the first half of next year, they will consider whether that is good for the u.s. economy. francine: you are expecting high -- hike next year? next year andtwo for the following year. -- four the following year but this increases the risk one of a 2018 hikes comes in 2017. stephanie raises a good point, i
would broaden that out, the impact of financial conditions, the way we calculate financial conditions is three factors -- the dollar is one and equity markets and credit markets. very well sod up far but if we do see equity markets, all, that could have an effect on the fed. a bit of what happened in the previous heightening, the markets did some tightening for the feds and if that happened we could see a pullback. stephanie: there was no real change in the gradient of the line and if i'm speaking about hawkishness this is expected to be a gradual rate rising season for the fed compared to history. insaw that, they are feeding one more rate rise for next year but the pace after that is pretty much unchanged. we are getting to the same place at a slightly faster pace.
rather than the idea that suddenly this is a reflationary new world. francine: -- tom: we like to talk gradient on thursday morning. steven saywell help me out with the broad trade weighted chart on u.s. dollar, what this shows is the percentage move of the class a record and the rubin dollar, the late 1990's dollar, the percentage move in the red arrow and the yellow arrow on the left, the same equivalencies from the recent bottom and up we go to new strength. steven saywell says we will not need another plaza accord, that this will get adjusted, how will the em countries explain to chair yellen and president trump that they will be overcome by events? what is the mechanism? steven: i a lot of it comes back to what other asset markets do and a good point, we were talking about equity markets, so
far we have not seen a collapse. in the same way that it emerging-market currencies. they are weakening against the resurgent dollars but the market is not really panicking. a good point, we are not seeing an aggressive change in fed rate hikes. the second point from an fx perspective, previously defund the currency has been the dollar when we had qe. now we have qe in japan and the eurozone, there is a supply of funds coming in from these countries that have very large current account surpluses, some of which will find their way into em markets and from that perspective it may not be a complete disaster in emerging-market currencies. tom: let me bring up this chart that steven saywell has tattooed on his left arm. here is 1997, i am making this chart quick, here is the fixed
malaysia as they try to get out 6-7 years after the carnage of 1998. sorry, stephanie, is it walks like a duck and walks like how willt is a duck, mr. trump react to this, weaker em currencies? he has to adjust. francine: we all want what tom had for breakfast. [laughter] tom: seriously, bill gross nailed this, she is central-bank or to the world. stephanie: funny you bring up close tobecause it is my heart, sitting in the u.s. treasury working with larry summers during that crisis and the big problem, the unexploded bomb in the global economy or the fixed exchange rates that were ready to go that caused
this massive adjustment when they finally went. that caused issues we were dealing with in the late 1990's. inhave had a safety valve this country's, depreciation in the last couple of years, one of the things underpinning the cautious optimism investors have around emerging-market in the face of donald trump. de-risk are greater than a few months ago because we think the dollar will be stronger than we thought a few months ago but broadly, if you are looking at a more growing global economy, the global pmi's, not just the u.s. that the rest of the world strengthening slowly, if you have much less downside potentially on the currency and commodities because we have already had that a few years ago , it is reasonable to wait and see. for investors to because usually optimistic. tom: you mentioned it earlier, when i talked about overcome by events, you've nailed it, about capital flows, what will you watch to see if capital flows
unhinge into sweat or modest panic? steven: two areas i am interested in our japan and the eurozone and he reason i mention them is because they have a large current account surpluses and easy policy which is a recipe for follow outflows. if we see that continuously, this will help emerging markets. is probably the one to watch because we are starting to see tapering. no sign of that from japan but the ecb is starting to see that and if we start to see the euro not weakening but strengthening on the back of that, that could start to change things. that was the main reason we think that in this environment dollar-yen is the editor vehicle to represent dollar strength rather than euro-dollar. steven saywell of bnp,
up to tens of 1% from a year before. the industry than as a whole with sales up 6%. retail sales in the u.k. unexpectedly rose last month, black friday discounts prompted shoppers to spend on electronics and household goods. retail sales were up 2/10 of 1% from october, a survey had forecast no change. that is your bloomberg business flash. francine: let's go back to central banks, left its deposit a laterhold at -- and today we will get a rate decision from the bank of england. let's get a quick update. no real change expected. what we need to figure out is how governor carney will deal with inflation. absolutely, no change expected to the benchmark rates
or to the asset purchase target but the big question is -- how will mark carney manage this balancing act? they want to support growth and are on track for growth in the fourth quarter but it has to control inflation. part of what fueled inflation is higher oil prices and weaker sterling and we had economic data this week that highlighted that dynamic, on the one hand, employment falling for the first time in more than a year but inflation accelerating to its highest in more than two years. one thing worth noting, trading rated -- way to the sterling has gained 6.5% since the last meeting in november and that was a key meeting, where we saw the shift from an easing to this news. and bloomberg intelligence expects that mutual steps to be confirmed today. francine: what is governor carney doing in frankfurt?
we know he is there and maybe meeting with the ecb. do we know more? >> this is according to people familiar, a general council theing, different from governing council which is central bankers from the eurozone, general counsel is the central bankers from the eu. something me boe -- the boe attends. we are expecting mark carney to be quizzed by other central bankers on the fallout from brexit and how it might impact other eu countries. we know that mario draghi has said, if we have a disorderly exit, the u.k. will be hit hardest while mark carney has said that the u.k. is the investment banker to europe. what we will see in 2017 is the possible triggering of article 50 and that is when the real uncertainty comes and the real challenge comes from the bank of england. francine: thank you so much,
outside the bank of england. back with stephanie flanders and steven saywell, bnp global head of fx strategy. when you look at the bank of england, does mark carney have the toughest job because we do not know what brexit will mean for the u.k. them, ie: if i were think they do it share this view that they will be focusing most on the real economy as it works through the next couple of years and particularly the rise in inflation. we tend to say a rise in inflation put them in a difficult spot because they way that against the economy but they can give rise of inflation is one of the things likely to slow the economy next year because of the squeeze in consumers and so it dependent on the consumption side of the economy. the job is relatively easy in this next one year or two years because they are focused on the underlying strength and the risk that we might fall back into recession if there is nothing to
fill the gap with that consumption and the consumer. you can get into debates about where we will be in three years or four years but i suspect he would rather not even think about that because they are making policy for the next couple of years and right now the next couple of years, that is the thing to focus on. is to get toe idea the next boe meeting at fed meeting or maybe we ought to pay attention to how mr. draghi addresses 2017. one of our themes in the next hour, we have stephanie flanders through this hour and joining us, you read his work, andrew is fired up about the prescription for mr. carney and the prime minister. stay with us. this is bloomberg. ♪
♪ >> what i think is very clear as that we are in the midst of a big romance right now with three elements, higher growth, high inflation, and more liquidity coming into the markets. why ask because of the policy announcement so far of donald trump. francine: that was mohamed el-erian, he spoke to us. we are back from the stephanie with j.p. morgan and steven from bnp. a lot of this is priced in, if one of the three things he was talking about do not come true or short of expectations, what does it mean for currency? steven: i get this a lot from
clients, a lot of what the market is looking out for the fed is speculation on take fiscal expansion. there is the risk -- big fiscal expansion. a lot of what janet yellen is responding to is the current level of data and inflation. inflation is starting to pick up in the u.s. which is a big issue. it is actually firing on two cylinders, the current economy is doing well plus we have potential fuel on the fire of the fiscal expansion coming forward. tom: stephanie flanders help me on the update on what matters for brexit. look at the chart, i the mix of chair yellen and mark carney and the elephant in the , howwhich is capital flows are the capital flows of england , are we going to see a greater
current account deficit? stephanie: every year we think we will not see one and it creeps up, it is extraordinary how much -- the through flow of money in and out of the u.k. around 18%, 90% of gdp and the net borrow we did for the rest of the world -- that is clearly something mark carney has to watch. tom: let's continue this discussion. stephanie flanders and steven saywell tuesday stay with us, we will look at the united kingdom on the next hour. ♪
let's get to the first word news. >> and american fugitive accused in the largest cyber attack on wall street has been arrested, taken into custody after arriving in new york on a flight from moscow. he and two israelis are accused of stealing data from companies including jpmorgan, prosecutors say they use that to make it appealing -- millions manipulating stock, he a split not guilty. japan is trying to resolve a dispute involving russia, the prime minister hosting vladimir putin today, japan wants the return of four islands that russia invaded at the end of world war ii. vladimir putin says resolving the conflict could set the stage for a long-term relationship. at least one member of the romney family will have a job with donald trump, she will be the chairman of the republican national committee, she is the niece of mitt romney and the head of the michigan republican party. she was a strong supporter of
donald trump from the time he got the nomination. theresa may has arrived in brussels for the meeting of european union leaders, she is not invited to dinner, that is when eu leaders will discuss europe's future and she is fine with that. >> i welcome the fact that the other leaders will meet to discuss brexit tonight as we are ,oing to invoke article 50 trigger the negotiations by the end of march next year, right that the other leaders prepare for the negotiations as we have been preparing and we will meet the eu and we want that to be a smooth process, not just in our interest, the interest in the rest of europe. >> she is taking part in talks on security, migration, and relations with ukraine. global news 24 hours a day powered by more than 2600 journalists and and was in more than 120 countries. i am taylor riggs. this is bloomberg. all,that banner says it
not invited to dinner, she is invited to every dinner in brussels. extraordinary another meeting of eu leaders, except this is different, isn't it? different, you will still have the -- theresa may will be there and tonight she will be asked to leave in order for the 27 to have informal discussions about how they will handle brexit. no pre-negotiations at the moment. what is important for the eu leaders, the last meeting of the year, they have to distinguish many fires many -- 42017, the migrant crisis, agreements with turkey, austria wanted to freeze the talks of turkey. they may find a compromise today seeing that no new chapters are available for opening. , itquestions about russia
is a delicate balancing act for the eu leaders because president-elect donald trump wants to get vladimir putin as a closer ally. it will be difficult for the eu leaders to agree on new sanctions on pressure related to the situation in syria. eppo butl discuss al according to the draft conclusions, no new sanctions on the situation in syria but they are probably going to follow it for six months and the sanctions involving ukraine. tom: thank you, on the politics of brussels, the idea of looking at euro, 1.0479, maybe it will come up. francine: do not know whether they will talk about the fed,
they have pressing issues, brexit, i do not know if it is figure out a solution for the middle east but russian sections. justparity, not many expect parity to happen but we found one and he is coming here, he is in studio. we have locked him down. let's get back to steven saywell and stephanie flanders from j.p. morgan asset management. why are you expecting parity? steven: much more to do with dollar strength then euro weakness. as the market press -- prices in -- the dollar generally will do very well. i will review has been the dollar will be best against the low yield are's comedy central backs doing the zero interest rates, japan, switzerland, the eurozone. the key point is how ecb qe goes on? as we go into 2018, we think
with inflation improving in the eurozone, they will exit qe which will release the euro from being a super low yield are. elder. francine: expecting the ecb to roll back qe more than the market is expecting. if the ecb does rollback on qe and you do not see real growth, plus the political uncertainty with elections that could go either way, what kind of europe are we looking at? stephanie: you could see further euro weakness against the dollar, but i am not sure if we would see -- i think that comes with a bigger gap between what europe is doing and what the u.s. is doing, it does not mean we are necessarily looking at tapering. if you look at the moves in the meeting last week in the ecb, it gave mario draghi more than he lost. he has gained the flexibility to
continue quantitative easing for a long time even though bond purchases will be at a slightly lower rate, he didn't continue at -- he can continue. this was very much around the same thing we had with the bank of japan, we do not see any benefit to going into negative territory or distorted the end of the yield curve. we are easingmean off the easing policy, we still want to have policy very loose for the foreseeable future. tom: what is interesting to me is the similarities and the distinctions between what is going on in the united states and the united kingdom. steven saywell, if i look at the animal spirit of donald trump's america and the white presumption -- bring up the chart -- this is the overenthusiasm of a hotter economy, 15 and 20 years ago, here is the decline in animal spirit, this is nominal gdp, real plus inflation and here is the list up of what is supposed
to be a moon shot of animal spirit within the united states. is there a british animal spirit equivalent to what mr. trump will give us? steven: it is a good question. speaking one year ago, i would say the answer is yes. we are talking about bank of england hiking rates, one points back letting that the bank of england could move ahead of the fed. these two economies are similar, both with unemployment falling , far faster than both central banks had expected and importantly towards -- we have big uncertainty in the u.k. because of brexit. the economy has been holding up better than expected but our view is that investment is key and investment is where this uncertainty is hitting. we would say the u.k. is lacking those animal spirits because of the brexit uncertainty. francine: this is my chart of the year. away from donald trump, this is
what we are seeing, the ftse index in blue and this is found. -- pound. everything to do with pound in 2017. stephanie: the u.k., one of the reasons you would be positive about u.k. from an asset allocation standpoint is because of the rest of the world, the commodity cycles seem to be you haveng, the fact this somewhat stronger picture in emerging market economies and a stronger global picture. that's still benefits most of the ftse 100, the big companies that dominate the u.k. index and you could continue to see that, obviously the pound is important for how that translates into returns for anyone buying from non-sterling but overall you could be positive about u.k. large-cap and still be pretty concerned about what is going on in the u.k. economies, the opposite of the last few years where you have the ftse
miller.t to matthew matt: thank you. thank you for your time. you have left your rate unchanged today but you are concerned about the political of inple that could continue 2017, does the political situation, the donald trump election, the reflation trade, does that make your job more difficult? >> switzerland is a small economy and we depend on what is going on around the world. uncertainty in the world is something we care about. think the fed raising rates and pushing the dots further, normalization of policy from other central banks, does that take pressure off of you?
>> this is a positive side showing the u.s. economy is going in the right direction. the beginning of the normalization of u.s. monetary policy which has a positive effect not only for switzerland but on the whole world. matt: how do you juxtapose that with europe, the ecb has pushed out its qe for nine months and you have french elections and german elections coming up with the italy referendum. is it more problematic here? >> the situation in europe is more difficult, an economy growing less than the potential, very low inflation still come monetaryexpansionary policy in europe which is the reason we have to continue our expansion in monetary policy in switzerland. not: does -- matt: does that cause problems here, housing prices are expensive? >> not at all, housing prices, even mortgage volumes, they did
not increase that much during the last two years. our expansionary monetary policy did not have any negative impact on housing prices or on the mortgage volume. matt: what about bank profitability? an issue we have heard from bank ceos. concern for you considering the position of swiss banks? >> negative rates make for a tough situation. so far, so good, the bank profitability, it did not decrease dramatically and if it continues it may create a more difficult situation but we are confident that the banking sector is capable to adjust to the situation. matt: you said you could intervene in currency markets you if needed, the imf ask to consider more negative interest rates and more intervention, how do you take that advice? >> we have the negative interest
rates and the willingness for us intervene,n, -- important pillars of our monetary policy and we always look at the combination of the two at if we make a decision, what is the best combination to deal with the current economic situation. matt: how does your balance sheet size concern you? gdp,of the entire swiss can the go much further? >> it can if necessary, there are certain costs and benefits and we look at the cost-benefit analysis before we decide on intervention or to increase the balance sheet. given a difficult situation you are in in the fact that deflation is negative still, very low, negative, the output is negative and that the swiss franc is significantly overvalued, the willingness to intervene remains in the foreign exchange markets remains an important element of our monetary policy. matt: how far could you go,
150%? >> i will not make forecast but we have enough room to provide the necessary monetary conditions in switzerland. matt: you talked about the swiss -- the strength of the swiss franc, you see it overvalued, although it has been relatively stable against the euro and dollar over the last year. how far down would you like to see it, or what would be a level that makes you feel more comfortable? >> i do not make forecasts on that, the swiss franc overall remains significantly overvalued. a difficult situation for many sectors in switzerland, not only for those who export but of those who are in competition with importers from the eurozone. it is a difficult situation and that is the reason why we are still negative inflation and negative output cap in switzerland. talk about normalization
of policy from all central banks, in the u.s. we see that, do you see that happening in europe? central banks getting back to normal rates? u.k., ecb? yet, if you look at the decisions by the central bank's recently, still too early, we have an economic situation, if it improves in europe, we depend on european situations, all decisions that help the european economy to grow, to be stronger, that is something that is beneficial for switzerland. matt: thank you, we appreciate your time. tom keene, back to you. tom: as he speaks we see the a 1.0ollar breakdown to 475. we will continue with stephanie flanders and steven saywell. i want to speak to them about what the pros watch in switzerland, euros-swiss, a most
♪ this is what it is about, smart church and smart guest. stephanie flanders jpmorgan and steven saywell with francine in london. we heard mr. miller speak with mr. jordan. an historic moment, massive swiss franc strength. against an irresponsible europe, the red trend is the management of euro-swiss and steven saywell , this blue curve, i would suggest is -- suggest that this is a wreck fighting every day as they are overcome by european events, will they give it up, will we see massive swiss appreciation? steven: a very good question. euro-swiss is where it is. they have the most negative deposit rate in the markets, the
chart i used quite often comparing the country's, this is the key goal, they want to be the lowest and if the others catch up they will go lower. the intervention continues, we do a lot of work in this, the data is exhilarating. will they continue? absolutely. the long-term migration tells is equilibrium in euro-swiss is franc's40 so the swiss overvalued, they have fundamentals on their side, the most overvalued currency. encrypt -- the yen is the most undervalued. they have to continue to insulate the swiss economy from the ravages of a strong exchange rate. we would speculate there will be more intervention. tom: brilliantly said, the number one question into early next year is we talk about foreign exchange reserves, rather the success of switzerland, the mystery of china, the failure of malaysia the philippines -- and the
philippines, what is the quality when we talk about foreign exchange reserve, are they all usable, usable for mr. prudent and mr. jordan -- putin and mr. jordan? steven: countries use them in different ways and they are built up in different ways. swiss reserves are rising and chinese reserves are being depleted as they are fighting currency depreciation. the point we would make is that they are useful but from a different perspective, you need to look at the specific country and focus and a switzerland is one of the fastest rising foreign exchange reserves at the moment, we know where they are coming from but in 10 years it could be different and those reserves could be very useful like they are in china today. francine: china is where i wanted to go, the biggest risk for 2017 -- if you look at the reserves, lower room and the and outflows, they need to stabilize
but they cannot do all three at once. get -- the dollar has gone up, you get that immediate effect on the value of their reserves which is just not held in dollars, we are jumping but it isthe outflows relatively modest compared to the dollar strength. china is always up there. more worried about the instability you could get from a further big dollar push next year then you could from china in terms of the next year or six months to nine months. there is a elaborate poker game around the currency in it is interesting to see how it plays out. in the past, when the obama administration talked about the chinese currency and said we will go to china and talk about it, the currency would be completely stable for the duration of the time until the u.s. official arrived but you have the opposite here with thisd trump coming in and
significant move by the chinese which it is reasonable to say they are testing the water with president trump which is a dangerous game with the two most important economies in the world. i am nervous about the stage management of that relationship more than the underlying tensions. there are imbalances which china is a long way from resolving but the immediate threat, it is the dollar and that relationship. francine: you are not expecting the scenario, no trade wars which goes back to the relationship with the u.s. and china. this is her favorite call from next year -- euro-yen. steven: we think it moves higher and the trend has already started which is very much driven by the fact that the yen is the biggest loser in the dollar traded. we think it can go higher. we discussed ecb policy and we are both in agreement that this year the ecb will continue to be dovish. mario draghi made that
straightforward, it is what happens in 2018 that will be impressive. markets are forward-looking, already focusing on that. stephanie: the credibility of the bank of japan, they have said they will cut yield and in the context of donald trump, it is turbocharged the depreciation of the yen and given them support. to questionts start their capacity to keep that yield at zero, you could see a different story. tom: thank you so much, stephanie flanders and steven saywell. in our next hour, andrew sentance. this is bloomberg worldwide. ♪
react. governor carney will face high balances between brexit goleman and a near boom british economy. overcome by events, president traub is certain he can make america great again within trump inflation. live from world headquarters in new york, i am tom keene with francine lacqua in london. birthday greetings to prime minister may in brussels. did you receive greetings from the queen? so excited.am you don't get a birthday like this every year. tom: you are wearing black because you are in morning? -- in mourning? francine: no. you have to embrace your old age. tom: we don't do that here. here is taylor riggs.
president-elect and donald trump told america tech leaders he is an ally. any of the silicon valley elite supported hillary clinton. i am hereelect trump: to help you folks do well. about the bounce. not everyone has to like me. leaderstrump told tech there is no one like them in the world and he wants them to continue with their innovation. in aleppo, syrian rebels is a deal that will allow fighters and civilians to be evacuated is in place. yesterday, a cease-fire fell apart. rebels say the first group will leave today. they will be taken by us to areas still held by the syrian opposition. china is deploying weapons on andseven of the reefs
reclaimed in the south china sea according to a photograph released i the transparency group. the chinese president promised not to militarize the reefs. trying to maket nice with those who opposed the third runway. they are offering $1200 to homeowners to take part in environmental studies. they live on the land with a new runway is scheduled to be built. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. . am taylor riggs this is bloomberg. tom: through the data check, and extra foreign-exchange check at the end of the hour. it is an extraordinary reset after the yellen press conference. near new weakness with the curve steepening 144 basis points with a 10 year yield. if he would, the equity markets
not playing. it will be interesting how they play through the day. i will feature the philippines peso. the yen is 118. you heard him talk about the weekend and gold is down $32. done the datahave check for us both. the dollar taking a slide on the rate pass, gold declining. dollar, it is approaching a 13-year high against the euro. overcome by events is my theme. and maybe as we go to the inauguration. the philippine peso, they went to 50 pesos per dollar. they did that intraday. 39.89 is a huge of emotional deal for manila. the financial crash of
1997-1998, the miracle of olympian success, strong peso -- of philippine success, strong peso. how janet example of yellen is the central banker to the world. francine: that is what bill gross was saying yesterday. this is what i working -- what i'm looking at here and we talk simply should ditch the dots. they are back with a vengeance. this is what we saw the dot plot. last year was the blue line. the white line is now. we are paring back. the markets are expecting the 1.3 eight on the interest rates for next year. the pink is where we are now at 0.75. terrific set of gas over the last few days getting ready for the fed meeting. the boe at 7:00 a.m. wall street time.
we will talk about the reaffirmation of weak sterling. he reaffirms 110. we will talk about not. joining us, andrew sentence's debate ison to the formidable. he writes for "the telegraph" and has service with the bank of england. he is a glue guy. what will you listen to them governor carney? glue guy.am not a -- gloom guy. they cut interest rates in the summer after saying they were going to raise them for three years, 2013-2016. fromnk that the evidence the economy, while it has not been sparkling, they probably overreacted to the brexit
situation. inflation is picking up. carney and others will look through that. mood, whetherhe they appear to be concerned or reassessing what they should do about the u.k. monetary policy is what i will look for. i have not expecting a change in interest rates. tom: help him write his next column. you will reconfirm your 110. .his is darrell myers the blue arrow is where we are going. weak sterling. week sterling. you have been wrong, wrong, wrong. you can see that with the green in the chart. you say, i'm not giving up, we are going to 110. discuss. darrell: your green arrow, that is data mining. tom: are you saying i made a bad chart? darrell: absolutely.
you are just impatient. markets do this. cast.ow what is going on, let's extrapolate for the next 12 months. it doesn't work. with the greatest respect to the bank of england, it doesn't matter. it is not driving off with the bank of england does or says. the currency world has become a political beast and sterling was the first mover. divorce,t story, the the acrimony that may come with that, your capital flow is under pressure. it pushes sterling lower. that bit of your chart, i like. look at my chart. a reminder that it is my birthday, i have a better chart. the pound index.
this is in dollars. look at the difference between the ftse indices. it goes back to what we believe the pound will be next year. andrew: happy birthday. what is peculiar about the dollar story changing post-u.s. election has been the outperformance of sterling. it has been the best performer. the exception is the ruble and canada. with the chips being taken off the table, that was a bit of uncertainty. when we get clear of that, the market will look and say look at the fundamentals. surge. had a growth it will be squeezed next year. the policy of this currency, all pass is lower for sterling, even if we have to be more patient. francine: does it change when we figure out what the prime minister wants in the brexit
negotiations? have softened their stance, will it change the trajectory for the pound? daragh: that aspect will of and flow. we anticipate a softer story. i think that is why the sterling has been resilient. parliament will have more input. there's that argue for a softer negotiating stance in the u.k.? the eurozone seems to be pushing harder. we will have headlines to-ing fro-ing. you have to continue to put in a discounted sterling to fund the current account deficit. francine: what does it mean? mark carney, how does he look at his path from here? he is staring at an of this. he did -- at an abyss. he doesn't know what to negotiate. andrew: the economy next year is
fairly consistent. looking at independent forecasters, they are forecasting themselves, the obr, they all have growth between 1% and 1.5 percent next year with a wider range for 2018. they are still below 2%. most forecasters are not predicting a recession or a big, sharp rise in unemployment. he will want to track if the economy is performing in that way. drags on the 2 economy, one on rising import prices, the second on uncertain dna and vestment. have agents working out what firms are thinking and they will feed that back into their own assessment. tom: one of the great themes of "bloomberg surveillance" is financial stability and instability. shout out to deutsche bank,
which has been very good. with all that you have seen two-year end with a trump election, the challenges that you have written about so well, are we facing an exceptionally unstable next year, or are you confident we will see stability? andrew: we have other big political events, the french political election, german elections, and before that we have a period that the u.k. government said they will trigger article 50 by the end of march. the heightened political risk, the impacts of political events this year, will continue through next year. what i detect in the business world is it is climate ties to do that and many business people are getting on with running their companies. business confidence was hit
retail sales were up .2% since october. a bloomberg survey forecasted no change. world'sll hold the largest airport of according to people familiar with the plan. dubai will rely on debt funding for a significant part of the financing. the present airport is already the easiest for international traffic. that is your bloomberg business flash. tom: we have so much to talk about. yesterday afternoon, a terrific set of guests. thanks to alan blinder from princeton university. and the former vice chairman of the said. a conversation with william gross. here is bill gross on the central banker to the world. has tohair yellen realize it is a global central-bank. the dollar is the global
currency, has been and will be presumably in the future. to itshe will not speak directly, because ultimately, the globe is not her concern, but should be. sentence and daragh maher. global proxy. we have a trump reflation. here is the election, then down we go. what does it signal that gold is plunging as we approach reflation? part of it is dollar strength. typically they move in opposite direction. second is cherry picking. the market is approaching what a reflectiveing in way, cutting taxes, cutting regulation, higher
infrastructure spending. let's pretend he is not going to be tough on immigration or rattle cages. cherry picking, then the challenge for gold will be what happens when you get protection coming out. tom: andrew, when you look at the outcome we will see of the trump administration, not in the 10t 10 days, the next months, what will it mean for europe? a new calculus to the leaders meeting in brussels? andrew: it depends which trump turns up in the white house in january. there is positive economic news in terms of fiscal policy. he will be more stimulating for the u.s., and that will be more helpful to the global economy. what worries people the most in europe is the rattling around
protectionism. after having had 25-years of opening up the global economy, there seems to be a risk now that we are going to be putting up their interest to trade. that would be negative to the trading nations, including europe. francine: do you expect trade wars in 2017? andrew: i am not sure that is what i expect, it is a heightened risk. i believe in rationality. rattling,cribed it as that is what i think it is at this stage. it depends very much on how the to. approaches its desire have slightly different trade relations. that can be achieved in an amicable and positive way. if it ends up blocking imports from various countries or putting surcharges on them, that is not good news. francine: how much do you think emenomics is priced into
the market? you don't actually need to do so . people think it does so. it will help her out and spending. daygh: at the end of the you have to deliver. the market is working on the delivery of promises. the fiscal inflation, all of the positive aspects. let's pretend that he concentrates on repealing obama care of initially. the markets might get impatient. if we don't see the numbers come through in spending, inpatient. -- inpatient. then the stronger dollar is a constraint on the economy. it will limit inflation. it is a problem for the fed. tom: as we move to break, the markets are on the move.
after we heard jenny ellen striking a hawkish turn, the euro dropping 1% to 104.35. this means the euro/dollar is at the lowest level since january. set,ve the right guest on alice rivlin -- onset, daragh maher and andrew sentence. since you are being accused of moving the euro/dollar, are you expecting parity by the end of the year? daragh: this is a huge dollar move. ishink the break significant. until this point, the dollar/yen was the way you played the dollar. it was the cleanest play. i wonder if the market turned to euro/dollar as the cleanest expression. now that we have the support weel out of the way, are
heading to parity? that is what markets will last. tom: my theme, overcome by tonts, a euro dashing parity, how does governor carney adjust to that? andrew: we already have got a pretty low value of the pound against the dollar, fairly low against the euro. idening ina w the u.k. and u.s. interest rates, which is implied by what the fed said and the bank of england is expected to do, that will put some flow down on the pound. again, it is dependent on what happens to the pound on the brexit factor. we have seen the pound sensitive to brexit is. if that appears to be going well, that is supportive of the pound.
if we get to the end of next year, and the u.s. interest 1.5%, 1.25%, id think there will be growing pressure on the bank of england to move interest rates up. i do not think we should rule out a rise in u.k. interest rates by the end of next year. tom: andrew sentence, thank you. from pwc. we will continue. plunging. gold next, the former vice chairman of the federal reserve system alice rivlin on trump's america. this is bloomberg. ♪
did yesterday. celebrating a birthday. francine: celebrating on "surveillance." tom: are we both sagittarius? francine: it is a firesign. i thought it was a water sign, but apparently we are feisty. tom: you can't have coanchors that are the same sign. francine: that is my favorite rule. tom: you are a sagittarius? bring the show to a stop. british prime minister theresa may arrived in brussels for the meeting of european union leaders. she is not invited to dinner. that is when the eu leaders will discuss europe's future. >> i welcome the fact other leaders will discuss brexit tonight, as we are going to invoke article 50 negotiations
by the end of march, it is right the other leaders prepare for those negotiations as we have been preparing. we want that to be a smooth and orderly process, it is in the interest of the rest of europe as well. taylor: may is taking part on discussions with ukraine. a territorial dispute with russia. prime minister shinzo abe is hosting vladimir putin. japan wants to return the four islands that russia had at the end of world war ii. putin said it can be part of setting the stage for a long-term relationship. another blow to yahoo!'s reputation. yahoo! says the security breach in 2013 may have affected more than one billion user accounts. the company has about one billion users. in september, yahoo! said the personal information of 500
really in a cyber attack. of 500 million in a cyber attack. i am taylor riggs. it is time to get perspective. we have been humbled by the quality of our guests. on the short list has to be the former vice chairman of the federal reserve chairman, alice rivlin. n revolutionized economics in washington. years ago with the advent of a congressional budget office. what was it like the first day in the congressional budget office? alice: good heavens, it was chaotic. we were starting a whole new thing. we had rather vague directions from congress. they wanted a congressional budget office. they wanted me to start it. we had to draw organization
charts on the board and ink about how big of a staff we wanted. it was a totally new thing. tom: i could go three hours on trump fiscal economics. bring up the chart. helped, this is the deficit to gdp. the clinton surplus here. deficit to gdp. you have any confidence that the fiscal policy for word will sustain this good deficit to gdp , or are we getting ourselves into trouble? alice: there is the long run and the short run. in the short run, some of the things that president trump has advocated, if they come about, such as a rigged infrastructure bigram, and -- such as a infrastructure program and tax
cuts, we will have pretty fast growth in the economy and the deficit will go up, but not to enormous proportions. what worries me is the long run. we are not dealing with the fact that we have an aging population. we have in it so horrible growth in medicare and medicaid. we do not have the tax revenues coming in to support that. we have to fix that in the long run. tom: there is a scoring, where you fold in your growth of economy beliefs as you go along with your deficit. none of us do dynamics boring at -- dynamic scoring at home. do believe that it can work? alice: i do. so does the congressional budget office. they allow for the impact of a major new program on the economy
when they figure future deficits for big items like a big tax cut. the trouble is that people who advocate dynamic scoring are often the same people who want big tax cuts, and have exaggerated ideas of what it might do for the economy. it does not do that much. you have to look at both sides. you have to look at the impact on the deficit, negative for the economy on the long run. , help me withn: the dollar strength. brutalat any risk of a moves in the dollars that will take us back to those moments? i do not mean getting near the rubin/dollar, where we are now, but in the vicinity of the plaza of the 1980's alice:.
we have had a strengthening of the dollar for good reason. we are the strongest economy in the world now. people know that. that has good and bad sides. it helps us to control inflation, which is not a big problem anyway. on the other side, it is not very good for our exports. time will tell. i do not expect the dollar to go through the roof. francine: do you fear inflation in the u.s. coming back with vengeance? alice: i don't. i am the woman out among macroeconomists. i have been saying for a long time that the emphasis on inflation has been excessive. i think the reasons we have not for 25 ornflation more years is that the global
economy is extremely competitive. our own economy is extremely competitive. many things have changed. we don't have the union pressures on wages we used to have. i don't expect inflation to come roaring back any time soon. the reason for the fed move yesterday was not fear of inflation -- but economy strength. talk about if you are concerned , what thetrumpenomics president-elect has put through hoping to reflate the economy, get jobs growing, do reuse the a u.s. -- do you see a u.s. that is inward looking? what does that mean for global trade? alice: i am worried about some program.f the trump we would like to grow faster. that will take a lot of
investment, public and private. we are not sure how to make productivity growth faster. that is what we need. if we get into a trade war, we are being very destructive. if we put up tariffs, i can't imagine we would do that, on foreign goods, what will they do? they will put tariffs on our goods, and we will get into a trade war. another worrisome thing is the notion that manufacturing will be the wave of the future. it is not. we need good, well paying jobs that are not necessarily on an assembly line. other people can do that letter. -- do that better. we have overcapacity in manufacturing around the world. francine: how do you retrain the workforce?
as soon as you have driverless have 3or example, you million truck drivers without a job. is what donald trump is trying to do compatible with the change of pace? don't go overboard in the other direction. i think we will have truck drivers for a long time. we have made it more efficient through scheduling on the internet, but i think the apocalyptic view that no one will have a job doing anything is silly. we certainly have to figure out how to pay the people who do the essential services that we need. how to train them better. how to pay them better. that is all really important things to people's lives, like nurturing young children and taking care of older people. other kinds of services that
everyone wants, but do not pay very well. tom: you are truly an expert on taxes. i can say this to you or peter moores agre, or others, are we overtaxed? if you look at the sum of the taxes that viewers and listeners every day, -- pay are americans overtaxed? alice: i don't think so. by world standards we have lower taxes at the federal level and totally. what we need to do is to be sure we are paying for our government services. we are not on track to do that in the long run. and that we are getting our money's worth from everything we need the government to do. tom: alice rivlin thank you for your time. , former vice chairman
of the federal reserve system. giant on fiscal policy, the house of cards, every day the foreigners show up and by u.s. staff. with all going on in the hsbc e.m. world, will they show up and by the marginal note and bond? u.s.h: we want to buy things. part of that is because we think the u.s. dollar will go up. the currency effect. is yield surge in the u.s. causing a range of problems for emerging markets. when we started this year, it .as all about e.m. dollar debt it died away as a story. now it is back. you're seeing that echoed in the em currencies in the last 24 hours. francine: what are we discounting? possible trade wars, some of the things that president trump has
promised, we think has promised, coming through the full effect. is there anything we are missing? what is the one unknown for 2017? daragh: does he really only deliver the good bits? your previous guest mentions we do not expect tariffs, but we don't know what we are looking for in rational policy. the risk is that we are not as rational as we are used to. my concern is that the markets are assuming the nice bits. i am nervous we get more of the damaging aspects of his campaign. that is not where the market is at in terms of what it has discounted to this point. tom: what a wonderful conversation with dr. rivlin as well. stay with us. the bank of england at 7:00 my time. i will wander over to radio.
dinner, they will discuss grexit. -- discuss brexit. theresa may has not been invited. to has not been invited those talks. you can see the president of the commission. they will talk about syria, of about cover how they deal with the u.k. u.k. as well. here is taylor riggs. taylor: the head of the switzerland central bank says it does not make sense for this was to raise interest rates now. even though the federal reserve has so. >> this is a positive sign, showing the u.s. economy is direction,e right the beginning of normalization of u.s. monetary policy, which is positive for the u.s. and the whole world. the businessn says cycle is most advanced in the u.s. and that europe is further behind. exxon mobil, oil production to the primary generator of
profits. share and will replace rex tillerson, who was picked to secretary of state. he has been the company's president since last january. that is your bloomberg business flash. tom: the single best chart we have to get to, this is on productivity. this is not only my chart of the year, but the charge of "surveillance." this is the productivity of francine lacqua. here is london. this is francine. this is the number of requests she makes to the head of bloomberg television to travel. it productivity, i am sorry, drops. this year was so bad landed appear where she is in bulgaria. let's go to the proof of the francine productivity. francine: i am life from rome. paris. frankfurt.
the world economic forum in dav os. in davos. strasburg. france. scotland is making noise. tom: in paris. why are you in paris? shopping? francine: plenty more exclusive interviews. tom, my traveling makes me less productive or more productive because i can concentrate on a plane? tom: the only reason we do this is to get on an airplane where it is quiet with no -- francine: thank you. we are 2 sagittarius, so this has to be the end of the show, we are not compatible. breaking news.
justin,cial thanks to who put a lot of work making us smarter. thank you so much. they literally pulled an all nighter because they did not run run of francine running around europe, asia, and the rest of the world. there is a happy birthday for francine lacqua. the markets are on the move. i will do an extra for an exchange check in the next section. the yen is a total readjustment, rounded up to 119. the philippine peso touched 50 pesos per dollar four or five hours ago. extraordinary. this is bloomberg. ♪
takes to matt miller for that smart interview of the snb. not much movement there. over to the next screen, the philippine peso 50 earlier today. you have the renminbi weaker. series, asiacore dxy and dxy, both with stronger dollar. francine: the bigger story is all about fx. next is "bloomberg daybreak: americas." what are you excited about? reverberations really being felt in emerging markets. all of the asset classes covered over the next three hours. it will take a dive into company stories. we speaking with the eli lilly president and incoming ceo about drug pricing, company plans, and
the company's future. we are also talking to the incoming ceo of pioneer natural resources. if you want to know what will happen with shale, this is the guy to call. i was in midland, texas talking $55 oil.ir plans at and we will be breaking the boe rate decision. tom: let's sum up what we have ofrned with daragh maher hsbc. he has what i will suggest an outlier on weak sterling. we go to governor carney. i will suggest he does not cadence, orcertain unofficially with the hsbc. if you were to speak with governor carney, what would be the coefficient that gets you to weal sterling? and cabinet.its he would like us to be right. tom: why question like that is
important. daragh: a weaker currency is stimulative. not see that coming. you have a weaker sterling, and you don't sell u.k. assets, you are buying them. deficit current account for the united kingdom, goods and services. goods and services is not the story. it is the flows towards a greater deficit. if you have consumer spending, falling off of a cliff because of inflation or people are feeling uneasy, it doesn't help anyone. if you are mark carney, how do you look to the next 12 months? daragh: you have to anticipate the rise in inflation sterling will generate. we are in a weird point in the u.k. nothing has changed. that is why consumers are
spending. it is next year when the squeeze happens, that is when he will have to legislate. you have to keep a readiness to ease rather than the suggestion he will be neutral/tightening next year. tom: thank you. you will continue on radio as we see the bank of england decision. francine lacqua celebrating her 29th birthday. really lovely. where are you traveling next? francine: boe next. boe, boe, boe. tom: this is bloomberg with the bank of england decision. ♪
it is a busy day in the markets. s&p and dow futures relatively flat and the dax and ftse 100 slipping off the highs of the session, but the action is in the currency market. the dollar index at its highest level since 2003. yields backing up all across the board. rate decision boe coming out right now. expected, the bank of england keeping its rate at 25 basis points come also keeping its purchase plan at 435 billion pounds. the vote was 9-0. it was a unanimous vote. policy can move in either direction in response to the outlook. they do note a sharp pickup in consumer inflation expectation. they say the recent pound gain implies a smaller consumer price index overshoot.